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Product Market Competition and Agency Costs

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  • Baggs, Jennifer
  • de Bettignies, Jean-Etienne

Abstract

We model the effects of product market competition on agency costs, and develop two main empirical predictions. First, competition, by reducing agency costs, unambiguously increases the importance firms place on quality improvements. This leads to higher powered incentives, and in turn to increased effort and quality. Second, these effects are increasing in the severity of agency problems, and should be stronger in large, hierarchical corporations (where agency problems are more severe) than in entrepreneurial firms. We test the predictions of our model using a unique dataset with both firm and employee characteristics.

Suggested Citation

  • Baggs, Jennifer & de Bettignies, Jean-Etienne, 2006. "Product Market Competition and Agency Costs," Analytical Studies Branch Research Paper Series 2006287e, Statistics Canada, Analytical Studies Branch.
    • Handle: RePEc:stc:stcp3e:2006287e
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    File URL: https://www150.statcan.gc.ca/n1/en/catalogue/11F0019M2006287
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    References listed on IDEAS

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    Keywords

    Employment and unemployment; Hours of work and work arrangements; Labour; Wages; salaries and other earnings;
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